2024-09-06 | 05:40:39

As widely speculated, the Bank of Canada lowered their overnight rate to 4.25% on Wednesday, and all of the retail banks dropped their Prime Rate to 6.45% in response. This is good news for Canadian borrowers as variable mortgage rates and home equity lines of credit rates are now .75%  lower than they were at the start of June.

All of the ‘big 6’ bank economists expect this trend to continue throughout the rest of this year and next, with the consensus being that the bank Prime Rate will settle in at around 4.00 - 4.75% by December 2025.

One of the main concerns many economists had about the Canadian interest rates dropping before the US interest rates is that it would negatively affect the value of the Canadian Dollar. That hasn’t been that case so far, which gives the Bank of Canada more leeway to continue cutting rates.

Inflation seems to be under control, and the unemployment numbers have been creeping up. These are the two biggest factors the Bank of Canada looks at when deciding to adjust their interest rate. The hope is that they find the sweet spot where inflation remains steady at around 2%, and employment and wage growth remain consistent. Let’s hope that the Bank of Canada has learned its lesson and doesn’t overreact one way or the other.

Fixed mortgage rates also continue their slow decline, and rates below 5% are now the norm. With a little luck we will see sub 4% rates in 2025. If your mortgage (or anyone you know) is renewing in the next few months, it might be the perfect time to reconsider a variable rate. The beauty of the variable rate mortgage is that you can convert it over to a fixed rate at any time, at no cost. So rather than selecting a 1, 2, or 3-year fixed rate with the hope that the rate cycle bottoms out exactly when your mortgage renews, the variable rate mortgage allows you the flexibility to decide when you (with our help) think that the fixed rates have reached their low point.

Anyone with a fixed mortgage rate over 5.50% should consider returning that mortgage for something with a lower rate. Your penalty might be significantly smaller than the interest savings. This will change over the next few months, as Canadian Banks are allowed to charge an interest rate differential (IRD) penalty when fixed rates drop well below the previous rates. Lower rates mean higher penalties, so switching to a variable rate sooner rather than later could be a long-term money saver for you. I am always happy to do the calculations for you to see if there is an opportunity to save some money.

As always, call me if you have any questions, anytime. Please also feel free to share this update with anyone you think might benefit from it.

Many thanks,…Patrick